RBI’s forex forward position at 12-year low

While this does not indicate the central bank’s propensity or willingness to intervene in the market, the unwinding of RBI’s forward position has brought down premiums


RBI took huge positions in the forward market to hedge the outflows of foreign currency non-resident (FCNR) deposits that have begun to mature now.
RBI took huge positions in the forward market to hedge the outflows of foreign currency non-resident (FCNR) deposits that have begun to mature now.

The Reserve Bank of India’s (RBI’s) net outstanding position in the foreign exchange forward market fell to $94 million in August, the lowest in 12 years.

While this does not indicate the central bank’s propensity or willingness to intervene in the market, the unwinding of RBI’s forward position has brought down premiums.

The one-year forward premium, or the extra that companies are willing to pay to either sell or buy dollars at a future date, is 5.42%, down more than 80 basis points over the last seven months.

RBI took huge positions in the forward market to hedge the outflows of foreign currency non-resident (FCNR) deposits that have begun to mature now.

Global oil demand growth continues to be weak

Global oil demand growth continues to be dawdling. It dropped from a five-year high of 2.5 million barrels per day (m b/d) in the September 2015 quarter to a four-year low of 0.8 m b/d in the September 2016 quarter, accor-ding to International Energy Agency’s (IEA’s) latest oil market report.

That’s on account of vanishing OECD (Organisation for Economic Co-operation and Development) growth and a marked deceleration in China.

However, the December quarter is expected to be better.

“After unusually mild winter weather in much of the northern hemisphere in 4Q15, year on year growth should rebound somewhat in 4Q16 (+1.4 mb/d),” said IEA. But that would still be lower than the 1.81 m b/d demand growth seen in 2015.

Core sector data a tad better than a year ago

Core sector data for the April-August period is far more encouraging than a year ago.

Four out of eight sectors showed better growth than last year.

In fact, growth rates in sectors such as refinery products, steel, cement and electricity—all leading indicators of economic recovery—were at a faster pace than in the previous fiscal year.

Refinery products signal higher consumption of crude oil-linked products such as diesel and petrol.

This is ratified by higher auto sales.

Core industries that feed the consumer segment have done well.

These segments have lifted overall core sector growth rate to 4.5% from 2.4% a year ago.

However, coal and crude oil growth rates are down.

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